Coolhand's Market Analysis

Did the market just find out about the European debt bomb? You'd think so after today's reaction to downgrades on the sovereign debt of Greece and Portugal.

Trading started off choppy in spite of continued good earnings reports and guidance, this time from Texas Instruments, 3M, and Dupont. And it didn't react too much to today's data releases either. The S&P/CaseShiller 20-City Composite was up for the first time in 4 years (albeit not as much as expected) and consumer confidence posted a 57.9, which was much higher than expected.

Up until that point the market was flat to down, but once news that S&P credit analysts downgraded Greece's debt to junk and cut Portugal's debt to A- the selling kicked in in earnest and the market would eventually close at its lows of the day on high volume.

Also of note today, the Volatility Index spiked over 30% to 22.81 and the dollar gained 1.3% today, which really hit the I fund hard.

Obviously this kind of selling pressure is going to be reflected in the Seven Sentinels, but they did not issue a sell today. Here's the charts:



Both NAMO and NYMO have flipped back to sells and are now modestly bearish.



NAHL and NYHL also flipped to sells today.



Same with TRIN and TRINQ, which are showing oversold conditions.



The one buy signal (not surprisingly) is BPCOMPQ. This signal was well above that upper bollinger band yesterday and will take more selling pressure to push it back below that BB in order to roll it over to a sell.

So for the moment we have 6 of 7 signals on a sell, but the system remains on a buy.

Is the market in trouble? If the bulls jump all over this market tomorrow we could see some follow-though selling pressure. But I don't think that will be the case. Things were already a bit on the bullish side and a sharp decline like today may force many traders to lock in profits on perceived elevated risk. We'll just have to see how sentiment reacts tomorrow to get a clue.

The other issue, which comes into play tomorrow, is the FOMC rate announcement to be released at 2:15p.m. EST. I don't believe a rate hike is expected, but if we got one I would think bearish levels would spike, quite possibly causing another short covering rally. But aside from any rate movement (or non-movement) the Fed's language will be scrutinized for any change in tone. It's impossible to know what might happen by the close tomorrow regardless of how morning trading goes.

So I'm holding tight for the moment. I will not be making any moves tomorrow either until the FOMC decision is out of the way. Hopefully, today was a set-up for a bear trap. That's it for today. See you tomorrow.